The Canadian Wheat Board

The Canadian Wheat Board
North East Terminal Ltd.

Parrish & Heimbecker Ltd.

Paterson Grain

Providence Grain Group Inc.

North West Terminal Ltd.

Great Northern Grain Terminals Ltd.

South West Terminal Ltd.

September 05, 2007 12:34 ET

Grain Shippers File New Case Against CN Rail Service

WINNIPEG, MANITOBA--(Marketwire - Sept. 5, 2007) - Six western Canadian grain shippers today announced they will file new level-of-service complaints against CN Rail, which has failed to comply with the spirit of a recent Canadian Transportation Agency (CTA) ruling. The outcome of the case will have major implications for grain transportation in Canada.

The first complaints, from the Canadian Wheat Board (CWB) and North East Terminal Ltd., were filed today with the CTA. The CTA ruled in July that CN had failed to fulfill its obligations to Great Northern Grain, a northern Alberta inland grain terminal. Because of the systemic nature of the rail shipping problems, the CWB and nine other grain shippers were core interveners in that case, also supported by the governments of Alberta and Saskatchewan, other grain-industry organizations and major farm groups.

"Farmers and most of Western Canada's grain shippers continue to be left at a disadvantage from ongoing, system-wide service shortfalls at CN," said CWB President and CEO Greg Arason, noting that four meetings with CN since the CTA's July ruling have not reached a satisfactory outcome. He said the minor changes made recently by CN will not result in enough flexibility to efficiently move farmers' grain to port.

In their applications, the grain shippers are asking the CTA for an interim order to suspend CN's advance-products program (which will award rail cars to bidders Sept. 6) until a resolution can be found. They have also formally indicated a desire for a mediated solution that would avoid full litigation before the CTA panel.

The CTA found in July that problems with CN's rail car distribution program were not isolated to one company, but "systemic in nature". The Agency also found that CN's current rail car distribution practices "have resulted in the replacement of a reasonably accessible, transparent, user-needs based car allocation process with a more restricted, less transparent regime that does not provide an adequate level of services for grain shippers.

"The consequence of this is a radical and detrimental transformation of the nature and operation of the marketplace within the grain handling and transportation system in Western Canada." (Page 20, Decision No. 344-R 2007)

The CTA's decision emphasized the Agency's expectation that its findings would "help to encourage a new and open dialogue between CN and its shippers so that they are able to reasonably deal with car-supply issues independent of regulatory intervention to the greatest possible extent."

Garnet Ferguson, general manager of North East Terminal Ltd. in Wadena, SK, said a meaningful dialogue has not occurred with CN since July.

"The changes that CN has made amount to nothing more than tinkering," Ferguson said. "We need equal and accessible rail service for all shippers - not just a select few. We believe CN has failed in its legal obligation to provide us with adequate service."

The other grain shippers who will file their cases this week are: Parrish & Heimbecker Ltd., Paterson Grain, Providence Grain Group Inc. and North West Terminal Ltd. The case is also actively supported by Great Northern Grain Terminals Ltd., South West Terminal Ltd. and Weyburn Inland Terminal Ltd.

For more information, please see the attached backgrounder and visit http://www.cwb.ca/public/en/hot/rail/ , which includes a link to the July CTA ruling.

Background

- In Western Canada, there are two Class One railways: CN and Canadian Pacific Railway (CPR) plus a handful of shortlines. Because the mainline railways own and operate the lines over which all traffic must travel, they determine the car supply available for shippers, whether the grain originates on their lines or not.

- CN and CPR are mostly geographically separate. In Western Canada, there are 146 grain-handling facilities on CN lines. Only 23 facilities in the West can access either railway by having access to both CN and CPR or the ability to inter-switch traffic between lines. Most shippers are captive to one railway.

- CN allocates rail cars to grain shippers in two ways:

1) Advance cars booked for virtually the entire year, with preference given to bookings for the largest number of consecutive weeks and to those with the highest-volume shipping history with CN. Advance cars are guaranteed capacity, with penalties for default by either party. In 2006-07, advance cars were 69 per cent of the total CN supply to Vancouver.

2) General car supply offered weekly with no guarantee that the railway will provide booked cars. There are no restrictions on unit size and no additional charges above the posted rail tariff freight rate. During times of tight supply, the general-car program is often reduced to ensure that guaranteed advance cars are used and penalties avoided.

- In July 2006, CN completely removed its 50-car products (called "GT Secure") for yearly advance bookings and offered only 100-car units ("GX100"), which must essentially be booked for 42 consecutive weeks to secure supply. After a level-of-service complaint was filed in March 2007, CN re-introduced the GT Secure program, but with only a limited supply of 50-car blocks that does not satisfy shippers' concerns.

- Because smaller companies and single-point shippers cannot forward-book into a single rail corridor for consecutive weeks, they cannot participate in the GX100 program. They can participate in a cash-bid program for cars ("GT PRO") but this is a limited planning tool because the companies may not get the cars they bid for during high-demand periods.

- CN has insisted on continuing use of its 100-car advance programs and has proposed only small changes to existing programs rather than addressing the deficiencies that these programs create. CN's proposal will continue a significant shortfall of car supply for many shippers in the 2007-08 crop year, as there was in the last crop year.

- The grain shippers involved in this case are asking that the 100-car requirement be eliminated in favour of 50-car offerings (which could be combined into blocks of 100 if needed). They also want CN's practice of auctioning cars to the highest bidder to be discontinued. They have also asked that CN be required to distribute at least 50 per cent of its rail car fleet as general weekly distribution.

A bit of history

(Excerpts from CTA July 2007 ruling No. 344-R, pp. 11-12)

- Historically, grain moved under subsidized freight rate was subject to a maximum rate structure under the Western Grain Transportation Act (known as the Crow Rate). In 1996, the WGTA was repealed and replaced by a regime of freight-rate caps.

- After the repeal of the WGTA in 1996, until 2000, distribution of overall rail car supply for western Canadian grain was the responsibility of an industry-led group called the Car Allocation Policy Group (CAPG), which included all the major participants in the grain handling and transportation sector and included the railway companies, the CWB, major grain companies and smaller shippers.

- The main objective of CAPG was to effect allocation through a formal, non-legislative, consultative process to avoid gridlock, foster greater accountability between shippers and carriers and set high-level car allocation policy for western Canadian grain traffic. A four-person executive committee, made up of one railway representative (either CN or CP), the CWB, the Western Grain Elevator Association (WGEA) and a producer, established certain guidelines.

- Under CAPG, car allocation was negotiated between the railways, the CWB and the WGEA for commercial and rate-regulated corridors.

- With the disbanding of CAPG in 2000, there was a movement towards establishing commercial arrangements for the management of rail logistics for western Canadian grain. Grain companies began negotiating directly with the railways to arrange car supply. For certain portions of this supply, the railways began offering advance-order products designed to provide a range of service, price and product options, as well as volume-incentive discounts.

- Note: For the 2006-07 crop year, which began August 1, 2006, CN Rail instituted changes to its advance-product program which have become the focus of the level-of-service complaints filed this week and in March 2007.

- The extent of the rationalization of the grain handling and transportation system has been significant. For example, it has resulted in the decline in the number of grain elevators in Western Canada from 1,004 (in 685 communities) in 1999 to 374 (in 282 communities) by July 31, 2006. This rationalization is the result of, among other things, the development of high-throughput elevators that have holding capacities of 10 000 to 20 000 tonnes. Today, seven grain companies control 87 per cent of the total primary elevator capacity on the Prairies.

Contact Information

  • CWB media relations manager
    Maureen Fitzhenry
    (204) 983-3101 or Cell: (204) 227-6927
    or
    Inland Terminal Group
    Trent Weber
    Director of Transportation & Marketing
    (204) 926-8559 or Cell: (204) 782-3225